There is no ignoring the fact that everyone likes to use plastic these days. The odds of a customer paying you by cash rather than credit these days is only 20%. It's no surprise when you factor in the convenience and security of carrying cards though.
However, customers swiping cards could add up to big fees for your company. Today we will discuss ways of reducing your merchant processing fees and beefing up your bottom line.
What Are Merchant Fees?
Merchant fees are costs that are associated with credit/debit transactions. They typically range between 1.70%-2.60%. Merchant account providers charge these fees to businesses in order to facilitate payments. It is payment for their service of transferring money to your business and is automatically taken at the time of the transaction.
Look Into How Your Processor Charges Fees
There are 4 typical pricing models used by processors to calculate the fees your business will incur:
Subscription Pricing: With this model, your business pays a set monthly fee for processing all cards plus a negligible, fixed-rate fee per transaction.
Tiered Plans: In this model, different types of cards have different percentages charged. Typically these plans are less reputable and only benefit the card processors.
Flat Rate: This is the most common model. For every transaction, you incur a flat fee plus a percentage fee. It typically works out well for smaller businesses to use this model. Companies such as Stripe, PayPal, and Square are run using this model.
Interchange +: With this model your company is charged interchange fees plus fixed percentage and transaction fees. This is a combination of subscription and flat-rate pricing. It works out quite beneficially for some businesses however, you'd need to crunch some numbers to see if it would work for yours.
Reducing Your Merchant Processing Fees
- Typically the fees are lower when you physically swipe/chip cards instead of "card not present" transactions.
- Consider offering your customers other payment methods besides using plastic. ACH transfers, checks, and debit cards typically have low or no fees associated.
- Your company may be able to pass some of the fees along to your customers. Beware though, this is illegal in some states, so do your research.
- Always read your merchant account statements to be sure that you are not being overly or inappropriately charged.
- Avoid frequent or excessive chargebacks and fraudulent transactions as these make you appear riskier to your processor and can raise your fees.
- Many processors will let you negotiate your rates! Inform yourself and give them a call, it may just surprise you.
Remember
Credit card processing fees are unavoidable for most businesses but it is absolutely possible to minimize them. Always do your research on the best pricing model for your company and customers and actively seek out discounts when possible. Additionally, credit card fees are deductible from your taxes. Therefore, you are lowering your tax burden.
If you’re looking for more insight into minimizing your merchant fees, Bridging The Gap Financial Services LLC can help! BTGFS offers bookkeeping and accounting services, along with reporting and payment solutions. … and that’s just the beginning. We’ll provide you with a team of bookkeeping with expertise in your industry. We work with your existing accounting software and tools, but can also help you make the move to newer technologies.
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